Bankruptcy Judge Could Order Atlantic City to Rip Up Union Contracts
There is still no agreement on a state takeover of Atlantic City, which means a bankruptcy filing could happen in a matter of weeks.
City officials are unhappy with the takeover plan hammered out by Gov. Chris Christie and Senate President Stephen Sweeney because they argue the state would take too much control. And state Assembly Speaker Vinnie Prieto opposes it because it calls for reworking union contracts.
So would the city get a better deal going through the bankruptcy process or dealing with the state? Marc Pfeiffer, the Assistant Director of the Bloustein Local Government Research Center at Rutgers University said “that’s a political decision that Atlantic City officials are going to have to make.”
The bottom line, said Pfeiffer, is the city is facing two unknowns: What the state would do if there is a takeover, but also what the bankruptcy judge would do.
“There’s still room for reasonable negotiation to avoid a bankruptcy filing, but the city could rationally conclude they’d rather have their fate sorted out by a judge, where they are at the table negotiating, versus a state takeover where they don’t have a say in what’s going on,” he said.
He said the bankruptcy judge could order union contracts of city workers to be renegotiated, because “we’ve seen that in other cases across the country where as part of the settlement process labor unions have taken changes to their contract as part of the settlement.”
In a bankruptcy filing, the city would have to develop a plan of readjustment, which would have to be approved by the state Local Finance Board.
“What basically they have to come up with when you file for bankruptcy is 'here’s what we want to do, here’s our assets, here’s our liabilities and here’s how we want to deal with this',” Pfeiffer said.
The state law that establishes the procedure for how municipalities can file for bankruptcy is 70 years old and has never been used.
In the bankruptcy process, city officials will have to sit down with their creditors, which would include bond holders, labor unions, contractors who are owed money "and probably several other groups we haven’t thought of yet,” he said.
According to Pfeiffer, if city officials don’t want to sell off assets, the bankruptcy judge may order them to do so.
“At the end of the day, if the city isn’t moving in a way the judge feels is useful, the judge can say, 'OK, I’m going to set the plan and here’s what I’m going to order.'"